Actinogen Medical (ASX:ACW): Will history repeat itself? Can it bounce back from a troublesome Phase 2 trial?

If you thought you were having a bad Monday, spare a thought for Actinogen Medical (ASX:ACW) shareholders who saw their shares more than halve following the market opening. The catalyst was results of a Phase II trial that investors perceived to be a flop.

Actinogen (ASX:ACW) share price chart, log scale (Source: TradingView)

How could this be when the company announced the,’ Achievement of clinically and statistically significant superiority of Xanamem over placebo’? Because Xanamem did not meet the primary endpoint – what the trial was seeking to see that the drug could do. This is not the first time Actinogen has crashed in its history following a clinical trial perceived to be a flop, and the company lived to fight another day. But will history repeat?

Who is Actinogen Medical? And what is Xanamem

Actinogen is a biotech company that has a drug called Xanamem which it is using to fight neurological disorders. The company listed in 2007 and bears its name from actinomycetes which are compounds that the company was focused on at a time. It bought Xanamem out of the University of Edinburgh in 2014.

Xanamem is a once-daily oral therapy that works as an inhibitor of a particular enzyme perceived to be important in neurology. The most prominent neurological disorder Xanamem is being tested against is Alzheimer’s disease, which the drug fights by controlling the level of stress hormone cortisol inside brain cells. High levels of cortisol have been associated with cognitive impairment in Alzheimer’s, depression and many other diseases.

There are few drugs that can fight Alzheimer’s, and they only fight symptoms and may not work until a later stage, but any with potential get investors excited. Look no further than Biogen (NASDAQ: BIIB) with its drug Lecanemab. Xanamem has also been tested against depression and the results of a trial were the catalyst for this morning’s drop. The company has a separate Phase 2 trial for Alzheimer’s which will report in mid-2025. 

Why did shares halve after the trial?

So the drug was safe and well-tolerated and it achieved benefits on depression that were clinically and statistically significant. Unfortunately, the trial did not meet the primary endpoint of an ‘attention composite’ of three Cogstate computerised tests measuring attention and working memory with similar and large improvements in performance observed. ‘Did not meet the primary endpoint’ means that the drug did not achieve what the trial aimed to see it achieve.

The company tried to excuse the failure to meet the primary endpoint by noting the large placebo mean involvement impaired the ability of the trial to observe any short-term pro-cognitive effects of Xanamem. Be that as it may, it is not the result that would enable it to take it to a Phase III trial, without doing another Phase II trial. And even the ability to try again with Phase II is up to the regulators.

It does appear the Actinogen’s ambitions with depression are on the backburner for now, with the primary objective being the Alzheimer’s trial which is due to report next year. Nonetheless, the company hypothesised (on an investor call this morning) that a greater impact could’ve been seen had the study been for longer, noting the Xanamem group had a greater degree of improvement after the 6 weeks of treatments when the trial closed, but data kept being captured.

Will history repeat?

Healthcare companies crashing after clinical trials that do not meet the primary endpoint are not unprecedented. But it is even rarer that they bounce back, at least without pivoting to another indication and/or to another asset. This being said, Actinogen has bounced back before. In May 2019, it crashed after a perceived failure of Xanamem in Alzheimer’s. The company hypothesised at the time that the dose was too low, and it did not stop the company crashing. But less than 6 months later, it announced follow-up data that showed patients with a higher dose (20mg vs 10mg) had a higher impact and shares recovered much of its lost ground.

In our view, if the current trial in Alzheimer’s comes out positive, there’s no doubt that Actinogen will rebound – that has happened before with this company, and many others with good Phase II results. But it could be a decade in the doldrums if these results fail.

Ultimately, what happened to Actinogen goes to show that investing in clinical-stage biotechs is a risky business, with potential for great rewards, but also for big losses – losses less likely to happen with blue chip stocks.

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